Tracking a dollar in the dairy industry

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(Host) Dairy farmers have always wondered why milk prices stay high in the supermarket when their own paychecks fall. The Vermont Department of Agriculture is trying to answer the question. Officials are researching where the money goes in the milk industry.

VPR’s John Dillon reports:

(Host) At most supermarkets, you’ll pay around $3.00 a gallon for milk. Farmers get paid about $1.00 a gallon. That’s a 30% drop from what they got a year ago.

Byron Moyer is the state dairy division director whose office tracks retail prices every month. He says the price in the dairy case has gone down a little bit in the last few months, but not nearly as much as farm prices have fallen.

(Moyer) “The percentage reduction has been much greater at the farm gate than it has been at retail.”

(Dillon) Moyer says there are three parts to the milk price equation: the farmer, the processor and the supermarket retailer. Moyer says the state knows two parts of the equation – what farmers are paid and what customers pay in the supermarkets.

(Moyer) “The equally important price is, what the price for a gallon of milk is coming out of the processing plant going into the store. That would then enable us to determine where the greatest mark-up is in the value of the product occurs.”

(Dillon) The state recently asked supermarkets for data on what they pay for milk. The information will probably be considered proprietary and won’t be made public.

Economist Ronald Cotterill has also investigated the dairy price issue. Cotterill directs the food marketing policy center at the University of Connecticut. He looked at what happened to retail prices before and after the Northeast Dairy Compact went into effect. The compact allowed New England states to set prices above the federal minimum.

Cotterill found that supermarkets charged more for milk when the compact was in force, and kept prices high when the compact expired. Cotterill says supermarkets and processors make a 33% profit margin on a gallon of milk.

(Cotterill) “The milk is retailing for $3.00 a gallon. Somebody is making a dollar pure profit over and above all of the costs of buying the milk from the farmer, of processing it, and shipping it to the stores.”

(Dillon) In recent years, Texas-based Suiza Foods has bought many of the milk processors in New England. Suiza also bought Cumberland Farms, which discounted milk in its retail stores and used to compete strongly against other processors.

Dan Smith is the former executive director of the dairy compact commission. He says when Suiza bought Cumberland Farms, it left the region with only two milk processors:

(Smith) “It’s always been the case that somebody’s making money in the milk business besides farmers. Until a few years ago, it was easy to say that supermarkets were making the extreme lion’s share, with the processors having discipline in the market. Now Suiza and the supermarkets are splitting the inflated profit with the supermarkets, still making the lion’s share is my guess.”

(Dillon) Cotterill, the Connecticut dairy economist, says Suiza’s stock has outperformed the market in recent years. He says Vermont dairy farmers would have been better off buying shares in Suiza than buying more cows for their herds.

For Vermont Public Radio, I’m John Dillon.

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